Unweighted Index Numbers
There are two methods of constructing unweighted index numbers. (1) Simple Aggregative Method (2) Simple Average of Relative Method
Simple Aggregative Method:
In this method, the total of the prices of commodities in a given (current) years is divided by the total of the prices of commodities in a base year and expressed as percentage.
Simple Average of Relatives Method:
In this method, we compute price relative or link relatives of the given commodities and then use one of the averages such as arithmetic mean, geometric mean, median etc. If we use arithmetic mean as average, then
The simple average of relative method is very simple and easy to apply is superior to simple aggregative method. This method has only disadvantage that it gives equal weight to all items.
Example:
The following are the prices of four different commodities for and. Compute a price index by (1) Simple aggregative method and (2) Average of price relative method by using both arithmetic mean and geometric mean, taking as base.
Commodity

Cotton

Wheat

Rice

Gram

Price in





Price in





Solution:
The necessary calculations are given below:
Commodity

Price in

Price in

Price Relative


Cotton





Wheat





Rice





Gram





Total





(1) Simple Aggregative Method:
(2) Average of Price Relative Method (using arithmetic mean):
Average of Price Relative Method (using geometric mean)